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1 – 10 of over 4000
Article
Publication date: 1 February 2001

Gongmeng Chen, Michael Firth and Kyungjoo Park

ActivityBased Costing (ABC) is a relatively new accounting system that has received a substantial amount of publicity and is heavily marketed by consulting firms. In light of…

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Abstract

ActivityBased Costing (ABC) is a relatively new accounting system that has received a substantial amount of publicity and is heavily marketed by consulting firms. In light of this, we surveyed companies in 1999 to evaluate the adoption of ABC in Hong Kong. We set out to investigate factors that might lead to its adoption and also surveyed whether companies are satisfied with the new system. Our findings reveal a low adoption rate of ABC. There is directional support for companies with diverse product lines and those facing intense competition using activitybased costing. Companies that have adopted ABC report high satisfaction with the new system. Overall, activitybased costing has made limited inroads in Hong Kong. The reasons for this are not readily apparent.

Details

Asian Review of Accounting, vol. 9 no. 2
Type: Research Article
ISSN: 1321-7348

Article
Publication date: 1 March 2006

Bernard Pierce and Richard Brown

The study was designed to examine specific issues relating to the usage and perceived success of activitybased and traditional costing systems. Data were collected from…

3290

Abstract

The study was designed to examine specific issues relating to the usage and perceived success of activitybased and traditional costing systems. Data were collected from management accountants operating at senior management level in large companies in manufacturing, financial services and other non‐manufacturing sectors.

Details

Journal of Applied Accounting Research, vol. 8 no. 1
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 31 July 2007

Zhaoxun Chen and Liya Wang

Estimating product cost at the design stage, often referred to as product costing, is vitally important in the product configuration process in the mass customization paradigm…

3052

Abstract

Purpose

Estimating product cost at the design stage, often referred to as product costing, is vitally important in the product configuration process in the mass customization paradigm. There are three research streams in this field: analogous, statistical, and analytical methods. However, in a mass customization environment, these methods suffer the drawbacks of poor accuracy, low‐agility and an undesirable degree of detail. It is imperative to develop an efficient framework for product costing in mass customization. The paper aims to address these issues.

Design/methodology/approach

Activitybased costing (ABC) becomes a new trend in product costing which alleviates the shortcomings discussed above. However, the complexity of ABC probably increases in mass customization with a high degree of variety. In this research, a framework is formalized for product costing in mass customization, in which a generic activity definition is proposed to simplify and catalyze ABC practice in high‐variety production. Moreover, an activity dictionary with a hierarchical structure is developed to bring commonality and modularity to the storage and retrieval of activity data.

Findings

A generic activity‐dictionary‐based method for product costing in mass customization is developed.

Research limitations/implications

The method proposed for product costing provides valuable cost data for product specifications, as well as the activities to create them. Therefore, a product configuration solution can be financially evaluated and optimized.

Practical implications

Based on the methodology proposed, a prototype system has been developed and implemented in a computer‐assembling company.

Originality/value

This paper alleviates the negative impact of activity variety on product costing.

Details

Journal of Manufacturing Technology Management, vol. 18 no. 6
Type: Research Article
ISSN: 1741-038X

Keywords

Article
Publication date: 1 February 2002

Vincent K. Chong and Robyn Cable

This paper reports the results of a study on the implementation of an activitybased costing (ABC) system in an Australian oil and gas company. The findings suggest that the three…

1572

Abstract

This paper reports the results of a study on the implementation of an activitybased costing (ABC) system in an Australian oil and gas company. The findings suggest that the three most important objectives of implementing an ABC system were: (1) more effective cost management, (2) better cost control, and (3) more accurate costing information. The results reveal that lack of understanding of the ABC methodology was the most important factor that impeded the implementation of the ABC system. The results further suggest that the three most important factors that contributed to the success of the ABC implementation process were: (1) project team were well organized and advised, (2) there were good information flows between users and preparers, and (3) there were sufficient resources provided. Overall, the results of this study are similar to those studies conducted in the manufacturing sectors.

Details

Asian Review of Accounting, vol. 10 no. 2
Type: Research Article
ISSN: 1321-7348

Article
Publication date: 10 August 2015

Ahmed E. Haroun

The purpose of this paper is to present the use of activity-based costing (ABC) approach as an alternative option to the traditional cost accounting system. The contribution of…

10048

Abstract

Purpose

The purpose of this paper is to present the use of activity-based costing (ABC) approach as an alternative option to the traditional cost accounting system. The contribution of this study is to demonstrate, through a simple example, the application of that costing system in a service (maintenance) industry, i.e. the paper intended to develop a procedure for a cost model that help in calculating any maintenance job cost, to a reasonable degree of accuracy, based on the actual activities performed.

Design/methodology/approach

This research uses a simple example whereby hypothetical activities and cost data of maintaining an injector and a pump, of an internal combustion engine, are used, presented and analyzed based on the use of the developed procedure.

Findings

ABC system provides more accurate cost estimates rather than the traditional “order costing” methods that uses unit-level costs which are variable in relation to change in service volume. Traditional cost methods distort the costs by applying overhead uniformly over different jobs of varied complexities and activities scope. On the other hand, ABC is a useful means to distribute the overhead costs in proportion (fairly) to the actual activities performed in a specific job and, hence, enhance the rationality of decision making, i.e. will not distort the accounting information used for cost reduction, pricing, and evaluation matters. The results obtained from the analysis showed that allocating costs to the maintained injector decreased from $83.55 to $71.95 and, finally, to $67.57 when using the workshop-wide, two-stage and ABC overhead allocation methods, respectively; while that of the pump increased from $298.90 to $340.34 and, finally, to $359.48 when using the same three methods, in the same order, respectively. The result is quite fair when considering the complexity of the fuel pump, in terms of design and maintenance, when compared with the injector. Notice that using volume to allocate overhead costs results in over costing high-volume products, e.g. injectors (simple in terms of design and operation) and under costing low-volume products, e.g. pumps (more complex in terms of design and operation). The paper recommends to use ABC as a more accurate and fair method when charging maintenance job orders based on the analysis of costing two maintained items in the same premise while consuming different overhead resources.

Practical implications

This study attempts to analyze different methods to calculate a specific corrective maintenance job order. It strives to remedy the drawbacks of the traditional overhead costing of a job order when using principles related to the size of service, such as the direct labor cost/hours, as an allocation base. Consequently, the study proposed a new costing method, i.e. application of ABC. The traditional costing approach is considered by many firms as the best costing method. Nevertheless, it allocates overhead cost over job performed uniformly (equally) not differentiating between the complexity of the job and variety of the activities performed, e.g. using the same allocation base for “oil change” and “fuel pump adjustment” activities. So, ABC prevents cost distortions (unfairness) that could not be prevented by traditional cost accounting system. The author believes that the method presented in this paper will provide a useful management tool for costing maintenance jobs based on the appropriate selected activity drivers in maintenance workshops. The method could be applied for costing maintenance activities in maintenance of all industrial sectors.

Originality/value

The use of traditional costing method has proven to be distorted by applying overhead uniformly over different jobs of varied complexities and activities scope. In this paper the authors strive to present an effective costing alternative that outperforms the traditional ones with regard to overhead allocation. The paper aims to find reliable and fair maintenance costing method, i.e. to find out the relationships between maintenance activities and cost drivers. Although, ABC is widely used in manufacturing industry, no application or current research has presented an applicable thorough worked-out example, with the exception, to the author’s knowledge, of one in the aeronautical industry, to implement ABC method in maintenance industry. The importance of using this method comes from the fact that it provides, relatively, accurate and fair maintenance bills that provide customer satisfaction and firm good image. Hence, the paper is relevant in this respect and intended to contribute to the practice of maintenance management.

Details

Journal of Quality in Maintenance Engineering, vol. 21 no. 3
Type: Research Article
ISSN: 1355-2511

Keywords

Book part
Publication date: 23 September 2014

Anne-Marie T. Lelkes

This study extends the theoretical analyses of Duration-Based Costing (DBC), an alternative cost measurement system to Activity-Based Costing (ABC). DBC is simpler than ABC and…

Abstract

Purpose

This study extends the theoretical analyses of Duration-Based Costing (DBC), an alternative cost measurement system to Activity-Based Costing (ABC). DBC is simpler than ABC and uses the production cycle time to assign costs. This simplicity should allow DBC to be a better costing method for multiproduct firms that exhibit nonconstant returns to scale.

Approach

Data simulations for 1,000 cases and Data Envelopment Analysis (DEA) are used to analyze the production functions inside DBC and ABC models to determine their relative technical efficiency.

Findings

The results show that, for a given set of simulations, DBC shows more nonconstant returns to scale than does ABC. This corroborates prior research and suggests that a more complex costing system, such as ABC, may not always match the production technology of a multiproduct firm. Thus, DBC may have a higher level of accuracy than does ABC for firms that exhibit nonconstant returns to scale.

Originality

Since DBC has only recently been theoretically developed, this study is the first to analyze the relative technical efficiency of DBC compared to ABC.

Research Limitations/Implications

This study should bring some further awareness of the implications of alternative costing methods. The limitation of DBC is that it does not capture other factors not driven by the production cycle time that could be necessary for management decision making. However, DBC is better for multiproduct firms than a more complicated costing system and does help decision makers determine whether the production process is operating efficiently. It is imperative that firms choose which costing methods fit the firm’s needs and economic structure.

Article
Publication date: 1 October 2007

K. Sartorius, C. Eitzen and P. Kamala

Activity Based Costing (ABC) has been researched extensively in developed countries. Research on these issues in South Africa is limited. This article creates a better…

2382

Abstract

Activity Based Costing (ABC) has been researched extensively in developed countries. Research on these issues in South Africa is limited. This article creates a better understanding of the design of ABC systems in South Africa, comparing ABC implementation in South Africa to that in several developed/developing countries. A quantitative methodology was adopted to evaluate the extent of ABC implementation. A survey‐case study methodology was used to identify reasons for implementation/ non‐implementation, problems and critical success factors relating to implementation. The results show that the extent of ABC implementation in South Africa is lower than that found in developed countries, but the evidence is inconclusive. Nevertheless, the results suggest that the issues facing ABC implementers in South Africa are similar to those faced in many other countries. This study provides South African companies with a comparative framework of important variables to be considered in implementing ABC.

Details

Meditari Accountancy Research, vol. 15 no. 2
Type: Research Article
ISSN: 1022-2529

Keywords

Article
Publication date: 1 November 2001

Martin Broad and David Crowther

The technique of ABC has been widely adopted by universities in the UK, with the assumption that the more accurate identification of costs makes them more manageable. It is the…

2080

Abstract

The technique of ABC has been widely adopted by universities in the UK, with the assumption that the more accurate identification of costs makes them more manageable. It is the purpose of this paper to consider this question of manageability through identification and allocation in the university sector and to question this as a basis for decision making and resource allocation. The type of costing systems in place in an organisation must meet the needs of the organisation as a whole and there are a number of factors that will affect the type of costing system that is required and there are a number of costing systems that can be used. This paper considers the use of ABC within a university and whether school costing and course costing can meet the requirements of a university facing a challenging business environment where a significant amount of pressure is being exerted on the financial stability of some universities. In doing so the ability of ABC to satisfy the informational requirements of a university is called into question.

Details

Journal of Applied Accounting Research, vol. 6 no. 2
Type: Research Article
ISSN: 0967-5426

Keywords

Abstract

Details

Servitization Strategy and Managerial Control
Type: Book
ISBN: 978-1-78714-845-1

Article
Publication date: 26 June 2009

Rong‐Ruey Duh, Thomas W. Lin, Wen‐Ying Wang and Chao‐Hsin Huang

This paper describes the design and implementation of an activitybased costing (ABC) system for a textile company in Taiwan.

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Abstract

Purpose

This paper describes the design and implementation of an activitybased costing (ABC) system for a textile company in Taiwan.

Design/methodology/approach

An in‐depth field investigation by collecting and analyzing 39 months of field data, gathering information from files and archives, direct observation, interviews, and statistical analyses was conducted.

Findings

First, the company's existing cost system adopted a volume‐based cost driver to allocate overhead costs to products. While the company devised an “equivalent factor” to take production‐complexity into account, the weakness of the metric led to product cost distortions. Second, the existing volume‐based cost system ignores the impact of rework processes on product costs. Third, adding complexity‐related cost drivers to the volume‐based cost driver increases the ability to explain variations in overhead costs. Fourth, the newly designed ABC system incorporates both volume‐based and non‐volume based drivers, which considers the effect of rework on product costs. Fifth, the existing volume‐based cost system overestimates the costs of high‐volume products and underestimates the costs of products with high production‐complexity. Finally, the company still stays at the analysis phase of the ABC system implementation, possibly due to revision of strategy, no linkage to incentives, lack of MIS support, and inadequate inventory control.

Practical implications

The above findings have implications for companies attempting to implement ABC.

Originality/value

This paper extends prior research in the following. First, it reports on the entire process of ABC implementation for a given company, as well as facilitators/impediments in the process. Second, while most prior research tends to focus on success cases, our study presents a failure case, which has implications for practitioners trying to avoid the same mistakes.

Details

International Journal of Accounting & Information Management, vol. 17 no. 1
Type: Research Article
ISSN: 1834-7649

Keywords

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